Departmental Quarterly Financial Report

October - December 2019

I. Statement outlining results, risks and significant changes in operations, personnel and program for the quarter ended December 31, 2019

1. Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board. This quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates as well as Budget 2018 and Budget 2019.

A summary description of Veterans Affairs Canada’s (VAC) program activities can be found in Part II of the Main Estimates.

Basis of Presentation

This quarterly report has been prepared using an expenditure basis of accounting. The accompanying Statement of Authorities includes VAC’s spending authorities granted by Parliament and those used by the Department, consistent with the Main Estimates and Supplementary Estimates for the 2019-20 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before monies can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit but has been reviewed by the Departmental Audit Committee.

2. Highlights of Fiscal Quarter and Fiscal Year to-Date (YTD) Results

Statement of Authorities

Overall, VAC’s authorities reflect the changing demographic profile and changing needs of the men, women, and families the Department serves. This is evidenced by an increase in the number of modern-day Veterans and survivors (forecast to increase from 112,977 as of March 31, 2019, to 119,300 as of March 31, 2020) and a decrease in the number of War Service Veterans and survivors (forecast to decrease from 58,828 as of March 31, 2019, to 52,100 as of March 31, 2020). Despite the slight decrease in overall Veterans and recipients of VAC benefits, recent program enhancements have increased the demand on Veterans Well-being Act programs and benefits.

Fiscal Year to-Date

As at December 31, 2019, total authorities available (i.e. budget) at quarter-end increased by $786M (17.6%) compared to amounts available at the same quarter end of the previous year, from $4,475M to $5,261M.  This increase is the result of a $180M increase in Vote 1, Operating Expenditures, a $603M increase in Vote 5, Grants and Contributions, and a $3M increase in Statutory expenditures. $44M of the departmental budget increase relates to Budget 2019 measures to support Veterans as they transition to post-service life, to recognize Métis Veterans, to Commemorate Canada’s Veterans and to support research on Military and Veterans Health. 

In addition, VAC’s authorities increased during the third quarter of 2019-20 through supplementary estimates related to the following:

• Funding for demand-driven programs and services which provide support to eligible Veterans and their Families - $676.9M
• Toth class action settlement agreement  - $101.1M
• Indexation of Disability Pensions - $65.1M
• Continued implementation of PFL initiative - $14.5M

Total authorities used (i.e. expenditures) at quarter-end are $3,584M, which is an increase of $129M (3.7%) when compared to authorities used at the same quarter end of the previous year of $3,455M. This increase is primarily attributed to expenditures related to the items listed above.

Fiscal Quarter

Total authorities used (i.e. expenditures) during the third quarter of 2019-20 are $1,302M, which is $104M (8.7%) more when compared to the same three-month period of 2018-19 of $1,198M. A break-down of the spending for the third quarter of 2019-20, in comparison to the same quarter in 2018-19, indicates that spending on Operating Expenditures (Vote 1) increased by $6M, primarily attributed to increased demand for Veterans benefits and services, and the continued efforts to reduce the backlog and improve the delivery of services and programs to Veterans and their families particularly through the implementation of the new Pension for Life initiative. Grant and Contribution (Vote 5) spending increased by $97M, primarily attributed to payments made during the quarter relating to the correction of indexation of Disability Pension, as well as increased demand for programs relating to the Pension for Life (PFL) suite of programs. Spending on statutory authorities increased approximately $1.6M due to increase in employee benefit costs.

Figure 1 - Third Quarter and Year-to-date Expenditures Compared to Budget

Comparison of Net Budgetary Authorities and Expenditures for the Quarter Ended December 31, 2018 and December 31, 2019 (in millions of dollars)

Fiscal Years	2018-2019	2019-2020
Net Budgetary Authorities	4,475	5,261
Expenditures for the Quarter ended December 31	1,198	1,302
Year to date Expenditures	3,455	3,584

As a result of the Government’s expenditure management cycle, there are often fluctuations by quarter and between fiscal years when comparing budgets and expenditures. This is primarily a result of the quasi-statutory nature of the Department’s programs, which are demand-driven and based on need and entitlement. In other words, Veterans who meet the eligibility criteria for VAC’s programs are paid as they apply for benefits. Consistent with previous fiscal years, current departmental forecasts are predicting higher program payment expenditures by the end of 2019-20 as compared to last fiscal year (i.e. 2018-19).

Statement of Departmental Budgetary Expenditures by Standard Object

When analyzed by Standard Object, expenditures in the third quarter are generally consistent in comparison with prior-year spending. The largest variances include:

• An increase of $11M in Professional and Special Services which relates primarily to increased demand for certain types of treatment benefits and health services for Veterans.   
• A decrease of $15M in Utilities, Materials, and Supplies primarily related to spending relating to Other Health Related Services. Expenditures are artificially low due to a hold back on billings from a third party provider as they undergo an accounting system change within their organization.  Expenditures are expected to increase in the coming months.
• An increase of $97M in Transfer Payments which, as noted above, is primarily attributed to payments made during the quarter relating to the correction of indexation of Disability Pension program, as well as increased demand for programs relating to the Pension for Life (PFL) suite of programs.
• An increase of $9M in Personnel primarily attributed to continued efforts to reduce the backlog and improve the delivery of services and programs to Veterans and their families, particularly through the implementation of the new Pension for Life initiative.

*Note: Professional and Special Services includes support for health care and treatment benefits, as well as, external contractors to support departmental operations.

3. Risks and Uncertainties

VAC is dedicated to enhancing the health and well-being of Veterans and their families and recognizes that its success in fulfilling this mandate is directly related to the effective management of risk. Sound risk management equips the Department to respond proactively to change and uncertainty by using risk-based information to support effective decision-making, resource allocation, and ultimately, better results for Canadians. Additionally, it can lead to effective service delivery, better project management, and an increase in value for money.

VAC operates in a dynamic and complex environment characterized by internal and external drivers of change. The Department employs integrated risk management tools to proactively and systematically recognize, understand, accommodate and capitalize on new challenges and opportunities, with a focus on results. In addition, the Department has effective internal control systems in place, proportionate to the risks being managed.

As such, the Department’s executive-level committees, the Assistant Deputy Minister level Senior Management Committee and the Director General level Corporate Policy and Planning Management Committee serve as forums where the Deputy Head ensures that Senior Department Managers are aware of their financial management responsibilities, have the tools to enable these responsibilities, and manage the financial performance within their areas of responsibilities. In addition, these committees recommend and prioritize the department’s investment opportunities, based on Integrated Business Plans (IBPs), to ensure their alignment with departmental and Government of Canada expected results. The IBPs also support the development of integrated program and corporate risk registers and enable resource capacity planning for the Department.

Key risks currently being managed by the Department include:

1. Maintaining Core Services: To avoid the risk of not providing timely, high quality core services and benefits to Veterans and their families while simultaneously implementing several new initiatives and programs from multiple federal budgets, Veterans Affairs Canada is monitoring and mitigating the risks through:
   1. Refining internal processes to improve efficiency;
   2. Increasing the use of automation;
   3. Recruiting, training, motivating and retaining employees; and
   4. Maintaining a reasonable case manager to client ratio.
2. Fulfilling Mandate Letter Commitments: To prevent the risk of not fully implementing remaining mandate commitments, given the volume and complexity of commitments made to Veterans, Veterans Affairs Canada is mitigating the risk through:
   1. Reporting progress internally and through canada.ca;
   2. Increasing the use of automation; and
   3. Recruiting, training, motivating and retaining employees.
3. Achieving and Demonstrating Results: To avert the risk of not fully meeting planned targets, given that responsibility for Veterans' well-being is shared with multiple jurisdictions, other government departments, and individual Veterans, Veterans Affairs Canada is mitigating the risks through:
   1. Working closely with partners to ensure efforts are well aligned; and
   2. Exploring additional opportunities for sound research and data to inform direction.

The Department monitors these risks through the Departmental Results Framework and internal performance reports. Tracking performance in these areas enables timely adjustments and ensure risks are being effectively mitigated.

Additionally, the Departmental Audit Committee provides an important advisory function as part of the Department’s governance structure for risk. It provides objective advice and recommendations to the Deputy Head regarding the sufficiency, quality and adequacy of the Department's risk management process.

This integrated risk management process ultimately supports the Department in meeting its objectives. Further information on risks facing the Department and the steps taken to mitigate them can be found on VAC's website.

4. Significant Changes in Relation to Operations, Personnel and Programs

Mandate/Budget Commitments

Budget 2018

Pension For Life:

Work continues on implementing Pension for Life project elements. Significant work remains for our new client relationship management system, called GCcase. While the system is currently functioning at basic operating capability, key functionality remains to be designed, developed and implemented in order to efficiently process rehabilitation and disability benefits and redress elements.

Both the Department’s structures and employees will experience a great deal of change as we continue to transition Pension for Life project elements to program operations. Lessons learned around change management which can be applied to future projects / initiatives include communicate early and often, align tone of messaging to climate, consider who delivers the key messages and the medium of delivery and the need to raise awareness on reason for change.

Considering the number of professional development opportunities resulting from Pension for Life (as well as other pending projects and initiatives), maintaining resourcing levels on the project and in core operational areas is a challenge that could have broader departmental impacts. To that end, PFL remains adequately resourced to complete our mandate.

Commemorative Activities

The Government of Canada is committed to remembering and honouring the sacrifices and achievements of Canadians, including the more than 93,000 Canadians who played an important role in the Italian Campaign. A Government of Canada delegation departed for Italy to participate in a series of events marking the 75th anniversary of the Italian Campaign from November 28th to December 6th, 2019. The delegation included Canadian Veterans of the Second World War’s Italian Campaign, their caregivers, representatives from Veterans’ and Indigenous organizations, a Silver Cross Mother, Canadian youth, and representatives of the Government of Canada. The ceremonies honoured the sacrifices and achievements of those who gave so much to help liberate and bring freedom to the country, a key chapter in the liberation of Europe.

5. Approvals by Senior Officials

Original signed by:

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II. Financial Statements

Statement of Authorities

* Authorities available for use and granted by Parliament at quarter-end.

*Authorities available for use and granted by Parliament at quarter-end, including $44M in Budget 2019 measures approved by Treasury Board.

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Departmental Budgetary Expenditures by Standard Object (unaudited)

* Authorities available for use and granted by Parliament at quarter-end.

** Authorities available for use and granted by Parliament at quarter-end, including $44M in Budget 2019 measures approved by Treasury Board.